Keeping inflation under control affects how far your money will take you in retirement

By Lazetta Rainey Braxton, Next avenue

Inflation, the rising costs of daily expenses, has slowly crept into our lives like unwanted weight gain; at some point, you’re guaranteed to feel the pinch at almost every turn.

With prices rising, Gen Xers need to spend more money now to maintain their current lifestyles while feeling pressured to save for a comfortable lifestyle later in retirement.

If you’re like me, you might sing a version of BB King’s “Inflation Blues”:

“I try to make a living

I can’t save a penny

He takes all my money

Just to eat and pay my rent

I got the blues

I have the inflation blues”

Understand the impact of inflation on basic expenses

Typically, inflation targets the basic necessities of life: housing, medical care, food, and transportation. Let’s explore the impact on each.

Gen Xers, we’re within 10 years to 25 of 67, our full Social Security retirement age. This retirement range is well below a typical 30-year mortgage and signals our need to consider how we will manage housing costs now and in retirement.

Getting a 15- or 20-year mortgage when interest rates are low in the single digits can be a good hedge against rising rates and house prices and a mortgage-free retirement. If you want to keep a mortgage payment for a possible mortgage interest deduction, keep in mind the rule of thumb for housing costs: 30% of your total gross retirement income.

For example, if your total projected retirement income is $7,000 per month, your housing cost under the rule of thumb would be $2,100/month (very close to the average cost of a 2-bedroom apartment).

If home ownership remains on your dream list, watch out for rising rental prices which climbed 17.6% year-over-year beginning in March 2022. Consider a possible rent increase of 3% to 15% higher with each lease renewal.

Research projects indicate that a third of renters will be 60 or older in 2035. If you do the math, that population includes Generation X!

Even the costs of medical care scare Gen Xers who believe we age like fine wine when reality often says otherwise. PwC reports medical costs will rise 6.5% in 2022, down slightly from 7% in 2021. the increase in medical visits and the expansion of the team of doctors.

To offset high medical costs, consider funding a Health Savings Account (HSA), if available and feasible. HSA contributions are tax-exempt, along with earnings and distributions if the funds are used for eligible medical expenses throughout your lifetime. These accounts are a great addition to your growing retirement portfolio.

Rising gas and food prices also remain difficult to manage. Escalating gas prices are a dire reminder of back to work for commuters and a sore spot for vacationers. During the period from February 2021 to February 2022, gasoline prices increased by 6.6%.

In 2021, the USDA reported that food prepared at home and away from home saw inflation rise by 3.5% and 4.5%, respectively. By extension, and paired with the pandemic, restaurants and other food establishments will continue to pass costs onto consumers in order to stay afloat. Food for thought, certainly.

Consider inflation in retirement investment strategy

With inflation at its highest level in 40 years, our retirement investment strategy is more critically positioned as a defense against rising prices. Our goal is to ensure that we will not outlive our retirement income.

Pensions, social security and general savings will be our most common support systems; Yet we should beware that only about 7% of retirees receive all three forms of retirement income, with retirees receiving only a 1.3% increase in Social Security income in 2021.

Returns on only safe investments, such as high-yield savings accounts, money market accounts, and bonds have not historically outpaced inflation as with equity investments. It is important to review the percentages of your portfolio that are invested in stocks, bonds, cash, real estate and other investments.

Reconfirm the risk you are willing to take for the return you hope to get from your retirement accounts to offset the negative effects of inflation and support a comfortable lifestyle in retirement.

While inflation can trigger the blues, taking the right steps to manage its impact will allow you to enjoy life now and later without wasting time.

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